Consumer Price Index CPI is the governments most important statistic Announced monthly by Bureau of Labor Statistics Measures changes in prices of goods.

Similar presentations

Presentation on theme: "Consumer Price Index CPI is the governments most important statistic Announced monthly by Bureau of Labor Statistics Measures changes in prices of goods."— Presentation transcript:

1
Consumer Price Index CPI is the governments most important statistic Announced monthly by Bureau of Labor Statistics Measures changes in prices of goods and services over time Affects elections, economy, government policies, Social Security, pensions According to the Bureau of Labor Statistics: The CPI directly affects incomes of over 80 million people.

2
CPI How to compare prices from year to year? – Carletons tuition 2001: $25,371 – Carletons tuition 2011: $42,690 Did the price really go up after inflation? Carletons tuition in 1956: $730.00

3
CPI is an Index Number An index number measures the value of a variable relative to a base period (the percent change from a base period) Carletons 2011 tuition relative to 2001 – (42,690 / 25,371 ) x 100 = Carleton tuition index number for 2011, with 2001 as base period, is Tuition has increased 68.26% since 2001 Whats Carletons tuition index number relative to 1956? How much has tuition increased since 1956?

4
Fixed market basket price index What about inflation? CPI attempts to index the price of all goods and services CPI is an index number for the total cost of a fixed collection of goods and services This is called a fixed market basket price index and is based on hundreds of items

6
Student Price Index (SPI) SPI will compare the cost of the same collection of goods and services over time The same goods and services that cost $1,525 in 1980, cost $3,660 today. SPI for 2012 with 1980 as a base period is (3660/1525) x 100 = Student prices increased 140% from 1980 to 2012, about one-and-a-half times.

7
Using the CPI CPI is a market basket price index based on hundreds of items CPI base period is : = 100 Having an annual price index allows us to convert amounts at different times into dollars of the same year Historically 20 th century was time of inflation--- prices rose throughout the century increasing rapidly after 1973

8

9

10
CPI Consumer Price Index Last 8 years of CPIs YearCPI

11
Adjusting for changes in buying power Constant dollars, real income means dollars represent same buying power even though they may describe different years Basic Conversion Formula: To convert an amount in dollars at time A to the amount with the same buying power at time B:

15
Notes on the CPI The CPI represents the purchases of people living in urban areas (covers about 80% of U.S. population) The market basket (goods and services) is determined by the Consumer Expenditure Survey of 29,000 households (they use random sampling) Prices are also determined by surveys (80,000 prices in 85 cities at a representative sample of stores)

16
Exercise: The Minimum Wage Restate the minimum wage in 1970 dollars Make two line graphs on the same axes, showing the actual wage and the real wage in constant 1970 $$ Explain what your graph shows about the history of the minimum wage How much has the minimum wage increased since 1970, both nominally and in real terms? YearMinimum Wage 1960$ $ $ $ $ $ $ $ $5.15 $7.25